Texas Instruments 2014 Annual Report Download - page 29

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FORM 10-K
losses and credit carrybacks, and taxable income in future years. Our judgment regarding future recoverability of our deferred tax
assets based on these criteria may change due to various factors, including changes in U.S. or international tax laws and changes
in market conditions and their impact on our assessment of taxable income in future periods. These changes, if any, may require
material adjustments to the deferred tax assets and an accompanying reduction or increase in Net income in the period when such
determinations are made. Also, our plans for the permanent reinvestment or eventual repatriation of the accumulated earnings of certain
of our non-U.S. operations could change. Such changes could have a material effect on tax expense in future years.
In addition to the factors described above, the effective tax rate reflected in forward-looking statements is based on then-current
tax law. Significant changes in tax law enacted during the year could affect these estimates. Retroactive changes in tax law enacted
subsequent to the end of a reporting period are reflected in the period of enactment as a discrete tax item.
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Inventory is valued net of allowances for unsalable or obsolete raw materials, work-in-process and finished goods. Statistical
allowances are determined quarterly for raw materials and work-in-process based on historical disposals of inventory for salability
and obsolescence reasons. For finished goods, quarterly statistical allowances are determined by comparing inventory levels of
individual parts to historical shipments, current backlog and estimated future sales in order to identify inventory judged unlikely to be
sold. A specific allowance for each material type will be carried if there is a significant event not captured by the statistical allowance.
Examples are an end-of-life part or demand with imminent risk of cancellation. Allowances are also calculated quarterly for instances
where inventoried costs for individual products are in excess of market prices for those products. Actual future write-offs of inventory for
salability and obsolescence reasons may differ from estimates and calculations used to determine valuation allowances due to changes
in customer demand, customer negotiations, technology shifts and other factors.
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We review acquisition-related intangible assets for impairment when certain indicators suggest an asset’s carrying amount may not
be recoverable. Factors considered include the asset’s underperformance compared with expectations and shortened useful life due
to planned changes in its use. Recoverability is determined by comparing the carrying amount of the asset to the estimated future
undiscounted cash flow. If the future undiscounted cash flow is less than the carrying amount, an impairment charge would be
recognized for the excess of the carrying amount over fair value, determined by utilizing a discounted cash flow technique. Additionally,
in the case of an intangible asset that will continue to be used in future periods, a shortened useful life may be utilized if appropriate,
resulting in accelerated amortization based upon the expected net realizable value of the asset at the date the asset will no longer be
utilized.
We review goodwill for impairment annually, or more frequently if certain impairment indicators arise, such as significant changes in
business climate, operating performance or competition, or upon the disposition of a significant portion of a reporting unit. A significant
amount of judgment is involved in determining if an indicator of impairment has occurred between annual test dates. This impairment
review compares the fair value for each reporting unit containing goodwill to its carrying value. Determining the fair value of a reporting
unit involves the use of significant estimates and assumptions, including projected future cash flows, discount rates based on weighted
average cost of capital and future economic and market conditions. We base our fair-value estimates on assumptions we believe to be
reasonable.
Actual cash flow amounts for future periods may differ from estimates used in impairment testing.
Changes in accounting standards
See Note 2 to the financial statements for information on new accounting standards.
Off-balance sheet arrangements
As of December 31, 2014, we had no significant off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
Commitments and contingencies
See Note 13 to the financial statements for a discussion of our commitments and contingencies.